Hoodwinked: Robinhood gets new investors tripping over themselves for a money market fund

The free stock brokerage launched a new savings account this week.

It's more sizzle than steak, though.

Zack Miller | December 15, 2018

Fintech marketing is something to behold. If a bank like JPMorgan Chase announces a new savings account, crickets. If Bank of America launches a new debit card, no one really seems to care (other than The Points Guy and his minions). Customers and the media seems to shrug off these new products and services all the time.

But when popular fintech firms launch a standard financial product that’s been around for decades, the world goes nuts. That’s exactly what happened when upstart mobile brokerage, Robinhood announced it would offer checking and savings accounts with interest rates of 3 percent.

The five-year old company unveiled “Robinhood Checking & Savings” on Thursday, which offers no-fee checking and savings accounts and pays an interest rate roughly thirty-times the national average. Accounts also come with a Mastercard debit card that can access 75,000 ATMs for free.

The focus on no fees is right out of the Robinhood playbook, as it built its reputation by offering basic stock and cryptocurrency trading for free. The company also garnered a lot of attention in 2017 when it launched a social network.

The excitement around a money market account

The product launched with a lot of fanfare. Company execs hit CNBC and Bloomberg to tout the new product. And, Robinhood’s six million account holders — and many new prospects — responded favorably. Within 24 hours of the announcement, Robinhood had over half a million people signed up on a waiting list — a tactic it used to build demand for its core brokerage platform and when it launched crypto trading earlier in 2018.

When you read the fine print, though, it’s clear that the high-yielding bank account is really just a money market account in disguise. Robinhood invests customer deposits in higher-yielding securities, like U.S. Treasury bills and other short-term debt. So, unlike a bank account that would be insured by the Federal Deposit Insurance Corporation, Robinhood accounts are insured by the Securities Investor Protection Company. In case of a broker-dealer failure, the SIPC generally expedites the return of missing customer property by protecting each customer up to $500,000 for securities and cash, including a $250,000 limit for cash only.

Fintech marketing remakes old, boring products

Robinhood isn’t the first fintech firm to get PR for launching a new version of something old. Lemonade, a property insurer, created lots of waves when it launched an open-source insurance policy in 2018. Policy 2.0 was the firm’s shot across the antiquated insurance industry’s bow where the industry is at its weakest.

“I’m a recovering attorney, and I’ve been clean for 20 years,” Lemonade CEO and cofounder Daniel Schreiber told TechCrunch. “I think my English is pretty good, and I have a passing familiarity with insurance and generally I can’t understand this insurance policy. To do the next big thing in insurance means changing insurance. It’s not been done in generations. This is a historic document that’s been optimized around lawyers.”

Last week, robo-investing firm Betterment launched a service that automatically moves money between a savings account and a money market account. Called ‘Two-Way Sweep’, the firm lauded the service as a way to algorithmically take the stress out of investing. Helpful, yes. Exciting and really novel? Not really.

At a minimum, the fascination around Robinhood and other new fintechs shows that there’s pent-up excitement for friendlier financial products. But in this case, it’s not a quantum leap forward — it’s just an old-school financial product dressed up by marketing.